Professor Todd R Kaplan

Professor of Economics

Professor Todd Kaplan has been a faculty member since 2000. Before that, he was a lecturer at Ben-Gurion University. He has received grants from the Nuffield Foundation, British Academy, ESRC, Leverhulme Foundation and the Israeli Science Foundation. He was a co-winner for the Economics Network 2009 e-learning award for developing teaching resources in a grant from HEFCE. His current duties include being the co-director of FEELE laboratory for experimental economics.

Nationality: USA / Israel

Administrative responsibilities

Co-Director, The FEELE laboratory

Qualifications

BS (Caltech), MA (Minnesota), PhD (Minnesota)

Links

Research clusters

Research interests

Economic theory

Industrial organisation

Experimental economics

Professor Kaplan has diverse research interests that span theoretical, computational and experimental economics. His theoretical work includes research on price competition, cost sharing and patent races.

In price competition, he re-examines the classic Bertrand competition model (Spanish Economic Review) and shows that the standard textbook example is wrong since it overlooks other equilibria. Another paper shows that seemingly competitive policies, such as agreeing to match a competitor's price, are in fact very anticompetitive (International Journal of Industrial Organization, 2000).

When a group shares a common production function, they must decide how to divide the costs. For instance, if two friends want to share a pizza, how do they divide the costs. This is not so easy since they must also decide what size of pizza to order and a poor rule may cause them to overspend or underspend. Todd has two publications on this topic, one in International Economic Review and the other in Journal of Mathematical Economics.

He has modelled patent races as a contest, where on the first to invent wins but all still have to pay for their research. In his model, the value of the patent varies with the expense since an earlier innovation date is worth more to the winner. He has written three papers investigating this design in the Journal of Industrial Economics (2002), International Journal of Industrial Organization (2003) and in RAND (2008).

Todd has made earlier contributions to the computational field. He has published a paper in the Mathematica Journal and two chapters in a best-selling book edited by Hal Varian. Probably his best known work is what is known as the 'Kaplan' strategy. This was a simple computer strategy that was written to compete in a double auction, a well studied environment in experimental economics which is a simplified environment of a stock exchange. It won a well advertised tournament sponsored by the Santa Fe Institute. Recently, with the introduction of computerised agents acting on the internet, this research has had a resurgence of interest.

Research projects

Professor Kaplan currently has a research grant from the Nuffield Foundation for studying bidding behaviour in asymmetric auctions. He is the supervisor of Pricilla Marimo, who is studying the communication of climate change risk.

Abstract:Optimal rewards in contests

We study all-pay contests with effort-dependent rewards under incomplete information. A contestant's value to winning depends not only on his type but also on the effort-dependent reward chosen by the designer. We analyze which reward is optimal for the designer when his objective is either total effort or highest effort. We find that under certain conditions the optimal reward may either be negative or even decreasing in effort; however, we find no advantage to having multiple rewards.

Abstract:The optimal design of rewards in contests

Using contests to generate innovation has been and is widely used. Such contests often involve offering a prize that depends upon the accomplishment (effort). Using an all-pay auction as a model of a contest, we determine the optimal reward for inducing innovation. In a symmetric environment, we find that the reward should be set to (Formula presented.) where c is the cost of producing an innovation of level x and (Formula presented.) is the weight attached by the designer to the sum of efforts. In an asymmetric environment with two firms, we find that it is optimal to set different rewards for each firm. There are cases where this can be replicated by a single reward that depends upon accomplishments of both contestants.

Abstract:Optimal allocation without transfer payments

Often an organization or government must allocate goods without collecting payment inreturn. This may pose a difficult problem either when agents receiving those goods haveprivate information in regards to their values or needs. In this paper, we find an optimalmechanism to allocate goods when the designer is benevolent. While the designer cannotcharge agents, he can receive a costly but wasteful signal from them. We find conditionsfor cases in which ignoring these costly signals by giving agents equal share (or usinglotteries if the goods are indivisible) is optimal. In other cases, those that send the highestsignal should receive the goods; however, we then show that there exist cases wheremore complicated mechanisms are superior. Also, we show that the optimal mechanismis independent of the scarcity of the goods being allocated.

Abstract:The peer effect of Jose Canseco: a reply to J. C. Bradbury

In this paper, we respond to J. C. Bradbury's critique of our 2011 Labour Economics paper examining the peer effect of Jose Canseco. None of Bradbury's criticisms have any merit, and many reveal a severe misunderstanding of basic econometrics. For example, Bradbury accuses us of not deleting enough years from the sample, not censoring the sample on an outcome measure, and not controlling for average performance measures for each year explicitly when we have already included dummy variables for each year. Bradbury claims that we distort our findings, but he overlooks the parts of our paper that do not fit his thesis. Bradbury reexamines the performance of Canseco's teammates empirically and argues that our results are sensitive. However, this should not be surprising because Bradbury performs a completely different and highly flawed analysis. In particular, he fails to realize that he is estimating very different parameters which are difficult, if not impossible, to interpret. His specification and estimation are based on very restrictive assumptions which are not necessary, nor are they justified or even acknowledged. After examining every one of Bradbury's attacks on our paper, we conclude that none provides a convincing reason to reject our conclusions.

Abstract:Teaching Bank Runs with Classroom Experiments

Once relegated to cinema or history lectures, bank runs have become a modern phenomenon that captures the interest of students. In this article, the authors explain a simple classroom experiment based on the Diamond-Dybvig model (1983) to demonstrate how a bank run&#x2014;a seemingly irrational event&#x2014;can occur rationally. They then present possible topics for discussion including various ways to prevent bank runs and moral hazard.

Abstract:Effective contests

We find that two-stage contests could be ineffective, namely, there is a higher chance of low-ability players participating (and winning) than high-ability players. However, imposing a fee on the winner can guarantee that the contest will be effective. (C) 2009 Elsevier B.V. All rights reserved.

Abstract:Using Economic Classroom
Experiments

Economic classroom experiments are an excellent way to increase student interest,but getting started may be difficult.We attempt to aid the newcomer byrecommending which experiments to use and describing the current resourcesavailable.

Abstract:Vote or Shout

We examine an environment with n voters each with a private value over two alternatives. We compare the social surplus of two mechanisms for deciding: majority voting and shouting, that is, the voter who shouts the loudest (sends the costliest wasteful signal) chooses the outcome. We find that it is optimal to use voting in the case where n is large and value for each particular alternative of the voters is bounded. In for other cases, the superior mechanism is depends upon the order statistics of the distribution of values.

Abstract:Optimal rewards in contests

We study all-pay contests with effort-dependent rewards under incomplete information. A contestant's value to winning depends not only on his type but also on the effort-dependent reward chosen by the designer. We analyze which reward is optimal for the designer when his objective is either total effort or highest effort. We find that under certain conditions the optimal reward may either be negative or even decreasing in effort; however, we find no advantage to having multiple rewards.

Abstract:Dividing the indivisible - Procedures for allocating cabinet ministries to political parties in a parliamentary system

Political parties in Northern Ireland recently used a divisor method of apportionment to choose, in sequence, ten cabinet ministries. If the parties have complete information about each other's preferences, we show that it may not be rational for them to act sincerely by choosing their most-preferred ministry that is available. One consequence of acting sophisticatedly is that the resulting allocation may not be Pareto-optimal, making all the parties worse off. Another is non-monotonicity - choosing earlier may hurt rather than help a party. We introduce a mechanism, combining sequential choices with a structured form of trading, that results in sincere choices for two parties that avoids these problems. Although there are difficulties in extending this mechanism to more than two parties, other approaches are explored, such as permitting parties to make consecutive choices not prescribed by an apportionment method. But certain problems, such as eliminating envy, remain.

Abstract:The self-serving bias and beliefs about rationality

Most previous experiments attempting to establish the existence of the self-serving bias have confounded it with strategic behavior. We design an experiment that controls for strategic behavior (Haman effects) and isolates the bias itself. The self-serving bias that we measure concerns beliefs about the rationality of others. We find very limited support for the existence of the bias. To help understand why the bias seems to hold in some settings but not in others, we discuss a distinction between biases that are self-serving and those that are actually self-defeating.

Abstract:Innovative activity and sunk cost

We analyze innovative activity in a general framework with time-dependent rewards and sunk costs. When firms are identical, innovation is delayed by an increase in the number of firms or a decrease in the size of the reward. When one firm has higher profit potential, it is more likely to innovate first. Our framework generalizes an all-pay auction; however, we show that under certain conditions there is qualitatively different equilibrium behavior. (C) 2003 Elsevier B.V. All rights reserved.

Abstract:Effective price-matching: a comment

Corts [Economic Lett. 47 (1995) 417] showed that when allowing for price-beating policies in addition to price-matching policies, the competitive outcome prevails in lieu of monopoly pricing. I show by expanding the strategy set further to include effective price strategies, the possibility of monopoly pricing is restored. (C) 2000 Elsevier Science B.V. All rights reserved.

Abstract:The optimal design of rewards in contests

Using contests to generate innovation has been and is widely used. Such contests often involve offering a prize that depends upon the accomplishment (effort). Using an all-pay auction as a model of a contest, we determine the optimal reward for inducing innovation. In a symmetric environment, we find that the reward should be set to (Formula presented.) where c is the cost of producing an innovation of level x and (Formula presented.) is the weight attached by the designer to the sum of efforts. In an asymmetric environment with two firms, we find that it is optimal to set different rewards for each firm. There are cases where this can be replicated by a single reward that depends upon accomplishments of both contestants.

Abstract:Auctions and Leaks: a Theoretical and Experimental Investigation

We study first- and second-price private value auctions with sequentialbidding where second movers may discover the first movers bids. There isa unique equilibrium in the first-price auction and multiple equilibria in thesecond-price auction. Consequently, comparative statics across price rulesare equivocal. We experimentally find that in the first-price auction, leaksbenefit second movers but harm first movers and sellers. Low to mediumprobabilities of leak eliminate the usual revenue dominance of first-priceover second-price auctions. With a high probability of a leak, second-priceauctions generate higher revenue.

Abstract:Optimal allocation without transfer payments

Often an organization or government must allocate goods without collecting payment inreturn. This may pose a difficult problem either when agents receiving those goods haveprivate information in regards to their values or needs. In this paper, we find an optimalmechanism to allocate goods when the designer is benevolent. While the designer cannotcharge agents, he can receive a costly but wasteful signal from them. We find conditionsfor cases in which ignoring these costly signals by giving agents equal share (or usinglotteries if the goods are indivisible) is optimal. In other cases, those that send the highestsignal should receive the goods; however, we then show that there exist cases wheremore complicated mechanisms are superior. Also, we show that the optimal mechanismis independent of the scarcity of the goods being allocated.

Abstract:The peer effect of Jose Canseco: a reply to J. C. Bradbury

In this paper, we respond to J. C. Bradbury's critique of our 2011 Labour Economics paper examining the peer effect of Jose Canseco. None of Bradbury's criticisms have any merit, and many reveal a severe misunderstanding of basic econometrics. For example, Bradbury accuses us of not deleting enough years from the sample, not censoring the sample on an outcome measure, and not controlling for average performance measures for each year explicitly when we have already included dummy variables for each year. Bradbury claims that we distort our findings, but he overlooks the parts of our paper that do not fit his thesis. Bradbury reexamines the performance of Canseco's teammates empirically and argues that our results are sensitive. However, this should not be surprising because Bradbury performs a completely different and highly flawed analysis. In particular, he fails to realize that he is estimating very different parameters which are difficult, if not impossible, to interpret. His specification and estimation are based on very restrictive assumptions which are not necessary, nor are they justified or even acknowledged. After examining every one of Bradbury's attacks on our paper, we conclude that none provides a convincing reason to reject our conclusions.

Abstract:Teaching Bank Runs with Classroom Experiments

Once relegated to cinema or history lectures, bank runs have become a modern phenomenon that captures the interest of students. In this article, the authors explain a simple classroom experiment based on the Diamond-Dybvig model (1983) to demonstrate how a bank run&#x2014;a seemingly irrational event&#x2014;can occur rationally. They then present possible topics for discussion including various ways to prevent bank runs and moral hazard.

2010

Abstract:Effective contests

We find that two-stage contests could be ineffective, namely, there is a higher chance of low-ability players participating (and winning) than high-ability players. However, imposing a fee on the winner can guarantee that the contest will be effective. (C) 2009 Elsevier B.V. All rights reserved.

Abstract:Using Economic Classroom
Experiments

Economic classroom experiments are an excellent way to increase student interest,but getting started may be difficult.We attempt to aid the newcomer byrecommending which experiments to use and describing the current resourcesavailable.

Abstract:Vote or Shout

We examine an environment with n voters each with a private value over two alternatives. We compare the social surplus of two mechanisms for deciding: majority voting and shouting, that is, the voter who shouts the loudest (sends the costliest wasteful signal) chooses the outcome. We find that it is optimal to use voting in the case where n is large and value for each particular alternative of the voters is bounded. In for other cases, the superior mechanism is depends upon the order statistics of the distribution of values.

2008

Abstract:Optimal rewards in contests

We study all-pay contests with effort-dependent rewards under incomplete information. A contestant's value to winning depends not only on his type but also on the effort-dependent reward chosen by the designer. We analyze which reward is optimal for the designer when his objective is either total effort or highest effort. We find that under certain conditions the optimal reward may either be negative or even decreasing in effort; however, we find no advantage to having multiple rewards.

2004

Abstract:Dividing the indivisible - Procedures for allocating cabinet ministries to political parties in a parliamentary system

Political parties in Northern Ireland recently used a divisor method of apportionment to choose, in sequence, ten cabinet ministries. If the parties have complete information about each other's preferences, we show that it may not be rational for them to act sincerely by choosing their most-preferred ministry that is available. One consequence of acting sophisticatedly is that the resulting allocation may not be Pareto-optimal, making all the parties worse off. Another is non-monotonicity - choosing earlier may hurt rather than help a party. We introduce a mechanism, combining sequential choices with a structured form of trading, that results in sincere choices for two parties that avoids these problems. Although there are difficulties in extending this mechanism to more than two parties, other approaches are explored, such as permitting parties to make consecutive choices not prescribed by an apportionment method. But certain problems, such as eliminating envy, remain.

Abstract:The self-serving bias and beliefs about rationality

Most previous experiments attempting to establish the existence of the self-serving bias have confounded it with strategic behavior. We design an experiment that controls for strategic behavior (Haman effects) and isolates the bias itself. The self-serving bias that we measure concerns beliefs about the rationality of others. We find very limited support for the existence of the bias. To help understand why the bias seems to hold in some settings but not in others, we discuss a distinction between biases that are self-serving and those that are actually self-defeating.

Abstract:Innovative activity and sunk cost

We analyze innovative activity in a general framework with time-dependent rewards and sunk costs. When firms are identical, innovation is delayed by an increase in the number of firms or a decrease in the size of the reward. When one firm has higher profit potential, it is more likely to innovate first. Our framework generalizes an all-pay auction; however, we show that under certain conditions there is qualitatively different equilibrium behavior. (C) 2003 Elsevier B.V. All rights reserved.

2000

Abstract:Effective price-matching: a comment

Corts [Economic Lett. 47 (1995) 417] showed that when allowing for price-beating policies in addition to price-matching policies, the competitive outcome prevails in lieu of monopoly pricing. I show by expanding the strategy set further to include effective price strategies, the possibility of monopoly pricing is restored. (C) 2000 Elsevier Science B.V. All rights reserved.

Conferences and invited presentations

Professor Kaplan's teaching interests include microeconomics, industrial economics and game theory. He is especially interested in using classroom experiments to teach economic concepts and has recently developed an experiment to demonstrate bank runs in the classroom.